Weekend Review 10/04/2013

If there is one concept this week exemplified it is simply this, read the market... don't interpret the news effect upon it. Yes, the government shutdown is a significant news event and one that hit home to me personally as it has effected friends and family, but the market did not confirm this as a back breaking situation. If anything the market continues to look healthy and robust even with the debt ceiling as catalyst looming.

Breadth Checklist

Going through my checklist this weekend, on a short term basis the market does not look extended here as the number of NYSE stocks above their 10 and 20 period moving average is 45 and 55 respectively. On the other hand, the number of stocks in my universe down 25% in a quarter is 188 and the number of stocks above 50% for a month is 20 which are both signs of caution, so there is a mixed message happening. When there are crossing signals it's best to go to the source and look at what the market leading stocks by dollar volume and most discussed are doing. This gives a clue as to what the big money is doing in terms of potential liquidation as well as what the most highly mentioned stocks that have captured the social/retail attention. Do any of these look problematic?

FB

PCLN

YELP

Additionally looking at the index relationships it's evident that the SPX has been relatively weak while the RUT and COMPQ have been showing strength. This is a sign of a risk on environment as small caps and tech continue to perform and lead the way.

RUT:SPX

COMPQ:SPX

RUT:COMPQ

Looking at the week ahead the Clowns of Capitol Hill will still be the most watched event in the world with ramifications for the market but it's best to keep an open mind as to how the market will gauge the conclusion or lack there of. With Alcoa announcing on Tuesday after the close attention will once again be focused on earnings and individual catalyst. Observe and react to the market, don't consume and presume the news' influence.